2018 Starts Off with Another Termination Clause Case

On January 8, 2018 the Ontario Court of Appeal released its much anticipated decision in Nemeth v. Hatch Ltd. This was an appeal of a summary judgment motion in Nemeth v Hatch Ltd., 2017 ONSC 1356 (CanLII) where the court found that the following clause was enforceable and served to displace the common law presumption of reasonable notice:

The Company’s policy with respect to termination is that employment may be terminated by either party with appropriate notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.

When the employees’ employment was terminated, and consistent with the Employment Standards Act, 2000 he received 8 weeks’ notice and 19.42 weeks’ salary as severance pay. He also received benefits continuation in the manner prescribed by the Act.

Another case decided by the same motion’s judge in 2017 is Cook v. Hatch Ltd.2017 ONSC 47.

The motions judge undertook a comprehensive review of the case law to that point. The Court of Appeal in Nemeth held that:

… if employers do not make clear the parties’ intention to displace common law notice, they cannot complain if the fruits of their drafting are found to be ambiguous and unenforceable

The Court concluded that the clause in question clearly and unambiguously displaced the common law presumption of reasonable notice:

It is clear from the plain language of the termination clause in the present case that the parties intended and agreed to limit the appellant’s common law notice entitlement. The clause clearly “specifies some other period of notice” that meets the minimum entitlements prescribed under the ESA: it contemplates the appellant receiving “one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.” It cannot be said that the appellant retained his common law entitlements in the face of this explicit language, which denotes an intent to the opposite effect. I agree that there is no ambiguity that the parties intended and agreed to displace the appellant’s common law notice entitlement. Whether they agreed to limit it to the minimum entitlements under the ESA is a question to which I return later in these reasons.

The fact that the clause in the contract was silent on the issue of severance pay was indicative of an intention to contract out of the Act. The Court agreed “with the motion judge’s conclusion that the termination clause purports to limit notice but not the severance pay that the appellant would receive on termination. This is a very important distinction.” The Court then went on to rely upon the earlier Court of Appeal decision in Roden v. Toronto Humane Society and distinguish Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158. The Court in Nemeth quoted from Wood:

In Roden, the clause dealt only with The Toronto Humane Society’s obligation to give the notice of termination, as required by the ESA, or to pay Roden a lump sum for the notice period. It did not exclude The Toronto Humane Society’s additional obligation to continue to contribute to Roden’s benefit plans during the notice period. It said nothing about that obligation.

The Court in Nemeth found that the clause in the contract did not seek to contract out of the Act.

However, the Court of Appeal did interpret the contractual termination clause as entitling the employee to 19 weeks notice having regard to his 19 years of service. In doing so, it appears to have found this portion of the clause to be ambiguous.

The Court of Appeal has weighed into the termination clause debate in a number of cases and, while the edges of the law remain somewhat blurred, they are becoming much clearer than they were even a couple of years ago and this is a very welcome start to the year.